Ericsson reports continued good development

Transcription

1 Second quarter report July 21, Ericsson reports continued good development Net sales SEK 38.4 (32.6) b. in the quarter, SEK 69.9 (60.7) b. first six months Net income SEK 5.8 (5.0) b. in the quarter, SEK 10.5 (7.6) b. first six months 1) Earnings per share SEK 0.37 (0.31) in the quarter, SEK 0.66 (0.48) first six months 1) CEO COMMENTS We report yet another quarter of robust performance, says Carl-Henric Svanberg, President and CEO of Ericsson. Our employees impressive drive for operational excellence and responsiveness to customer needs continues to yield positive results. Technology leadership, long customer relationships and deep consumer understanding are key factors behind our leading position. The activity level in emerging markets is accelerating, which means more people have access to communication services. In parallel, operators seek new ways of working to meet the global trends of increased tariff competition and convergence of technologies and services. We continue to focus on supporting our customers in reducing the total cost of network ownership and developing new business models. Our competitive technology and services offering is a distinct advantage in this environment. The services area develops strongly and operators show growing interest in our offering, particularly in outsourcing of network operations, and the synergies we are able to leverage throughout the value chain. Hosting and content services are also in high demand as operators continue to develop their business to meet consumer needs, concludes Carl-Henric Svanberg. FINANCIAL HIGHLIGHTS numbers restated in accordance with IFRS, please see IAS 39 implemented as of January 1,, related to financial instruments. Income and cash flow Second quarter First quarter Six-month period SEK b. Change Change Change Net sales % % % Gross margin 45.9% 47.8% % % 46.4% - Operating income % % % Operating margin 21.6% 22.2% % % 18.4% - Income after financial items Net income 1) Earnings per share 1) Cash flow before financial investing activities Cash flow before financial investing activities excl. pension trust funding ) Attributable to stockholders of the parent company, excluding minority interest. Sales were up 18% year-over-year and showed a sequential increase of 22%. The ongoing network rollout in the North American market is well under way and invoicing included equipment worth close to two billion Swedish crowns originally planned for the third quarter.

2 2 Currency exchange effects negatively affected sales in the quarter by 2%, compared to currency exchange rates one year ago. In constant currencies, sales for the quarter grew by 20%. For the sixmonth period, currency exchange effects impacted sales negatively by 3%. Gross margin was 45.9% in the quarter. The software content was somewhat lower in the quarter, and the services proportion grew compared to the previous quarter. The operating margin was 21.6%, a slight increase compared to the previous quarter. Net effects of currency exchange differences on operating income compared to the rates one year ago were SEK -1.2 b. in the quarter. Financial net amounted to SEK 0.2 b. for the quarter. Cash flow before financial investing activities was SEK 5.4 b. in the second quarter. As previously reported, cash flow in the first quarter of was negatively affected by SEK 8.3 b. by the transfer of cash and cash equivalents into a Swedish pension trust. Balance sheet and other performance indicators Six months Three months Full year SEK b. Net cash Interest-bearing provisions and liabilities Days sales outstanding Inventory turnover Net customer financing Equity ratio 46.5% 46.5% 43.8% The financial position is strong. Net cash decreased by SEK 0.7 b. in the quarter to SEK 42.4 (43.1) b., mainly as a consequence of the dividend payment of SEK 4.0 b. Days sales outstanding were 90 days, an improvement by seven days compared to the first quarter. Inventories, including work in progress, were slightly up in the quarter by SEK 1.3 b. to SEK 19.3 (18.0) b., due to currency exchange effects. Excluding currency exchange effects, inventories, including work in progress, were flat in the quarter. Net change of deferred tax assets amounted to SEK 0.3 b. in the second quarter. The balance decreased from SEK 20.8 b. at year-end to SEK 18.9 b. Cash outlays with regards to restructuring amounted to SEK 0.4 b. for the quarter. Approximately SEK 2.3 b. of restructuring charges remains to be paid out during and beyond. MARKET AND BUSINESS HIGHLIGHTS There is continued growth in the GSM market where emerging markets show particularly good development in both network coverage and capacity. Tariff competition is intensifying in Western Europe. This stimulates both traffic growth and the evolution of new business models and services. In parallel, richer services and more complex technology has made total cost of network ownership, including operating expenses, an obvious priority for operators. As a consequence, operator focus on the services area is increasing. In this environment, our services offering is a key ingredient in assisting operators to lower costs and offer rich content services. An important step in helping our customers meet consumer demands is the recently announced Napster agreement, which will enable operators to offer branded music download services efficiently.

3 3 The WCDMA rollout continues, and Cingular Wireless rapid buildout plan in the US is driving the industry forward. When complete, Cingular s buildout will have contributed to doubling the installed WCDMA base outside of Japan. More attractive handsets with more competitive prices also contribute to the fast WCDMA network expansions. Our successful HSDPA offering is proving to be a crucial part of operator considerations in timing WCDMA deployments. With HSDPA, operators will be able to offer their customers even richer services including music and film downloads, TV, and enterprise applications. Triple play, which brings together telephony, Internet and broadcast media, continues to be a focus for both mobile and fixed operators. In parallel, operators are considering fixed/mobile convergence also as a way of reducing operating expenses. A key element in this development is the deployment of all-ip softswitch-based networks. Ericsson announced several strategic wins during the quarter in this area, of which BT s 21st Century all-ip network was the most noteworthy. Regional overview Western Europe sales grew 7% year-over-year. Also this quarter, Italy and Spain showed strong development, and the region as a whole continues to benefit from ongoing 3G deployments and GSM capacity enhancements. Central Europe, Middle East and Africa sales grew 27% year-over-year and was the largest region. The development was solid across the markets with particularly good development in Nigeria and Turkey. There is a continued strong GSM development as well as an increased focus on 3G. Asia Pacific sales were up by 8% year-over-year. China and India showed particularly strong development. While operators are evaluating different 3G technologies and performing large-scale trials with WCDMA, they continue to invest in GSM capacity enhancements to accommodate the strong subscriber growth. North American sales are recovering. Growth year-over-year of 31% indicates a market rebound following operator consolidation. The ongoing network rollout in the North American market is well under way and invoicing included equipment worth close to two billion Swedish crowns originally planned for the third quarter. Latin America shows continued positive development, and sales grew by 28% year-over-year through strong GSM sales. Argentina and Brazil, in particular, contributed to the year-over-year growth. Subscriber growth During the quarter, four new WCDMA networks were commercially launched, bringing the total to 65. We are a supplier to 38 of these networks. The number of subscriptions grew from 21 million to more than 28 million during the quarter and WCDMA is now by far the fastest growing 3G technology. The number of CDMA2000 1xEV-DO subscriptions grew by two million and has reached 14 million. We continue to see a steady increase in both subscribers and usage, which further contributes to the solid long-term industry growth. Net subscriber additions were more than 100 million in the quarter. At the end of the quarter, worldwide subscription penetration is 30%, with more than 1.9 billion total subscriptions, of which almost 1.5 billion are GSM. OUTLOOK All estimates are measured in USD and refer to market growth compared to previous year. The traffic growth in the world s mobile networks is expected to continue as a result of both new services and new subscribers. For we now believe that the global mobile systems market, measured in USD, will show moderate growth compared to.

4 4 We previously estimated the global mobile systems market, measured in USD, to show slight growth compared to. We maintain our view that the addressable market for professional services is expected to continue to show good growth. With our technology leadership and global presence we are well positioned to take advantage of these market opportunities. SEGMENT RESULTS numbers restated in accordance with IFRS, please see IAS 39 implemented as of January 1,, related to financial instruments. Systems Second quarter First quarter Six-month period SEK b. Change Change Change Net sales % % % Mobile Networks % % % Fixed Networks % 1.0 8% % Professional Services % % % Operating income Operating margin 23% 20% - 21% - 22% 17% - Sales in Mobile Networks grew by 19% year-over-year. In constant currencies, sales grew 21% yearover-year and 18% for the six-month period. In the evolution from GSM to WCDMA most customers are deploying networks that combine GSM and WCDMA. The growth in the GSM/WCDMA track was approximately 22% in the quarter. Of radio access sales, 54% was WCDMA/EDGE related. The strong subscriber growth continues and supports the growth in Mobile Networks sales. Sales within Professional Services have developed favorably during the quarter and grew approximately 25% year-over-year. In constant currencies the growth was 27% year-over-year. Supporting the strong growth the number of employees in services grew by 1,500 in the quarter. Other Operations Second quarter First quarter Six-month period SEK b. Change Change Change Net sales % 2.7-2% % Operating income Operating margin -4% 20% - 2% - -1% 11% - Other Operations show a sequential sales decline of 2%. This includes 17% growth in Ericsson Mobile Platforms. Operating income of SEK -0.1 b. is affected by ongoing restructuring in Ericsson Power Modules and increased R&D investments in Enterprise and public safety. SONY ERICSSON MOBILE COMMUNICATIONS For information on transactions with Sony Ericsson Mobile Communications please see Financial statements and additional information. Sony Ericsson Mobile Communications (Sony Ericsson) reported units shipped up 14% year-overyear and 26% sequentially. Sales increased by 7% year-over-year. Ericsson s share in Sony Ericsson s income before tax was SEK 0.4 b. for the quarter, compared to SEK 0.5 b. in the same period previous year. PARENT COMPANY INFORMATION Net sales for the six months period amounted to SEK 0.7 (0.9) b. and income after financial items was SEK 5.3 (4.5) b.

5 5 Major changes in the Parent Company s financial position for the six months period include increased short- and long-term receivables from subsidiaries of SEK 6.6 b. and decreased other current receivables of SEK 4.8 b. Current and long-term liabilities to subsidiaries decreased by SEK 7.3 b. and other current liabilities increased by SEK 2.4 b. At the end of the quarter, cash and shortterm cash investments amounted to SEK 67.2 (71.7) b. In accordance with the conditions of the Stock Purchase Plans and Option Plans for Ericsson employees, 5,294,648 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock at June 30, was 292,992,667 Class B shares. Stockholm, July 21, Carl-Henric Svanberg President and CEO Date for next report: October 21, AUDITORS REPORT We have reviewed the report for the second quarter ended June 30,, for Telefonaktiebolaget LM Ericsson (publ.). We conducted our review in accordance with the recommendation issued by FAR. A review is limited primarily to enquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the interim report does not comply with the requirements for interim reports in the Annual Accounts Act and IAS 34. Stockholm, July 21, Bo Hjalmarsson Peter Clemedtson Thomas Thiel Authorized Public Accountant Authorized Public Accountant Authorized Public Accountant PricewaterhouseCoopers AB PricewaterhouseCoopers AB EDITOR S NOTE To read the complete report with tables please go to: Ericsson invites the media, investors and analysts to a press conference at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at (CET), July 21. An analyst and media conference call will begin at (CET). Live audio webcast of the press conference and conference call as well as supporting slides will be available at and

6 FOR FURTHER INFORMATION PLEASE CONTACT Henry Sténson, Senior Vice President, Communications Phone: investor.relations@ericsson.com or press.relations@ericsson.com Investors Gary Pinkham, Vice President, Investor Relations Phone: ; investor.relations@ericsson.com Susanne Andersson, Investor Relations, Phone: investor.relations@ericsson.com Glenn Sapadin, Investor Relations, North America Phone: ; investor.relations@ericsson.com Media Pia Gideon, Vice President, Market and External Communications Phone: , ; press.relations@ericsson.com Åse Lindskog, Director, Head of Media Relations Phone: , ; press.relations@ericsson.com Ola Rembe, Director, Media Relations Phone: , ; press.relations@ericsson.com 6 Telefonaktiebolaget LM Ericsson (publ) Org. number: Torshamnsgatan 23 SE Stockholm Phone: Safe Harbor Statement of Ericsson under the Private Securities Litigation Reform Act of 1995; All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as anticipates, expects, intends, plans, predicts, believes, seeks, estimates, may, will, should, would, potential, continue, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; and (xii) plans to launch new products and services. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) further reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.

7 7 FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION Financial statements Page Consolidated income statement 8 Consolidated balance sheet 9 Consolidated statement of cash flows 10 Changes in equity 11 Consolidated income statement - isolated quarters 12 Additional information Page Accounting policies, Ericsson adoption of IAS/IFRS in 13 Net sales by segment by quarter 18 Operating income, operating margin and employees by segment by quarter 19 Net sales by market area by quarter 20 External net sales by market area by segment 21 Top ten markets in sales 22 Customer financing risk exposure 22 Transactions with Sony Ericsson Mobile Communications 22 Other information 23

8 ERICSSON CONSOLIDATED INCOME STATEMENT 8 Apr - Jun Jan - Jun SEK million Change Change Net sales 38,444 32,595 18% 69,911 60,706 15% Cost of sales -20,797-17,020-37,010-32,564 Gross margin 17,647 15,575 13% 32,901 28,142 17% Gross margin % 45.9% 47.8% 47.1% 46.4% Research and development and other technical expenses -6,267-5,291-11,941-10,741 Selling & Administrative expenses -3,895-4,384-7,536-8,250 Operating expenses -10,162-9,675-19,477-18,991 Other operating revenues and costs Share in earnings of JV and associated companies ,057 Operating income 8,303 7,250 15% 14,905 11,183 33% Operating margin % 21.6% 22.2% 21.3% 18.4% Financial income ,594 1,919 Financial expenses ,269-2,042 Income after financial items 8,488 7,328 15,230 11,060 Taxes -2,693-2,286-4,791-3,338 Net income 5,795 5,042 15% 10,439 7,722 35% Net income attributable to stockholders of the parent company 5,843 4,969 10,460 7,572 Net income attributable to minority interest Net income 5,795 5,042 10,439 7,722 Other information Average number of shares, basic (million) 15,835 15,829 15,790 15,783 Earnings per share, basic (SEK) 1) Earnings per share, diluted (SEK) 1) Reconciliation of Net income from Swedish GAAP to IFRS Net income, Swedish GAAP 5,290 8,283 Reclassification of minority interest Reversal of amortization of goodwill Stock Option Plans Amortization of capitalization of development costs ,268 Taxes Net income, IFRS 5,042 7,722 1) Based on Net income attributable to stockholders of the parent company

9 ERICSSON CONSOLIDATED BALANCE SHEET 9 Jun 30 Mar 31 Dec 31 Jan 1 Jun 30 SEK million ASSETS Fixed assets Intangible assets Capitalized development expenses 7,042 7,556 8,091 8,091 9,819 Goodwill 6,994 6,120 5,766 5,766 6,184 Other Tangible assets 6,489 5,867 5,845 5,845 5,911 Financial assets Equity in JV and associated companies 5,047 4,468 4,155 4,155 3,666 Other investments Long-term customer financing 1,608 2,779 2,150 2,150 2,427 Deferred tax assets 18,945 19,266 20,766 20,689 23,264 Other long-term receivables 2,493 1,949 1,236 2,173 1,060 50,324 49,732 49,300 50,571 53,517 Current assets Inventories 19,281 18,023 14,003 14,003 14,792 Receivables Accounts receivable - trade 38,415 34,470 32,644 31,688 31,796 Short-term customer financing 2,794 1,455 1,446 1, Other receivables 11,356 13,649 12,239 15,814 10,590 Short-term investments 55,863 48,986 46,142 46,142 34,831 Cash and cash equivalents 16,340 22,548 30,412 30,412 43, , , , , ,762 Total assets 194, , , , ,279 EQUITY AND LIABILITIES Equity Stockholders' Equity 89,584 86,784 80,445 81,934 71,911 Minority interest in equity of consolidated subsidiaries 858 1,068 1,057 1,057 1,526 90,442 87,852 81,502 82,991 73,437 Long-term liabilities Pensions 1,858 1,628 10,087 10,087 10,389 Other long-term provisions ,146 1,146 1,640 Notes and bond loans 11,825 20,417 19,844 20,781 26,770 Liabilities to financial institutions 2,731 2,790 1,993 1,993 2,179 Other long-term liabilities 2,420 1,990 1,856 1, ,728 27,715 34,926 35,863 41,956 Current liabilities Current provisions 23,277 23,520 24,053 24,502 24,405 Interest-bearing liabilities 13,346 3,581 1,719 1,719 6,944 Accounts payable 11,767 10,770 10,988 10,782 9,692 Other current liabilities 35,813 35,425 32,998 34,219 32,845 84,203 73,296 69,758 71,222 73,886 Total Equity and liabilities 194, , , , ,279 Of which interest-bearing provisions and liabilities 29,760 28,416 33,643 34,580 46,282 Net cash 42,443 43,118 42,911 41,974 31,721 Assets pledged as collateral 1) 881 1,017 7,985 7,985 7,943 Contingent liabilities 1,365 1,622 1,014 1,014 1,972 1) The major part of the decrease in assets pledged as collateral is attributable to the funding of the Swedish Pension Trust

10 ERICSSON CONSOLIDATED STATEMENT OF CASH FLOWS 10 Apr - Jun Jan - Jun Jan - Dec SEK million Net income attributable to stockholders of the parent company 5,843 4,969 10,460 7,572 17,539 Adjustments to reconcile net income to cash 2,239 1,982 4,428 4,149 10,490 8,082 6,951 14,888 11,721 28,029 Changes in operating net assets Inventories ,604-3,636-3,432 Customer financing, short-term and long-term , Accounts receivable -1, , ,403 Other 565-1,127-6, Cash flow from operating activities 7,110 6,453 1,340 9,683 22,479 Product development ,146 Other investing activities -1,545-1,975-2,005-2,042-3,642 Cash flow from operating investing activities -1,697-2,202-2,460-2,504-4,788 Cash flow before financial investing activities 5,413 4,251-1,120 7,179 17,691 Short-term investments -6,877 2,695-9,721-14,739-26,050 Cash flow from investing activities -8, ,181-17,243-30,838 Cash flow before financing activities -1,464 6,946-10,841-7,560-8,359 Dividends paid -3, , Other equity transactions Other financing activities ,695-14,281 Cash flow from financing activities -4, ,032-2,698-14,558 Effect of exchange rate changes on cash Net change in cash -6,208 6,293-14,072-9,943-22,703 Cash and cash equivalents, beginning of period 22,548 36,879 30,412 53,115 53,115 Cash and cash equivalents, end of period 16,340 43,172 16,340 43,172 30,412

11 CHANGES IN EQUITY 11 SEK million Jan - Jun Jan - Dec Jan - Jun Stock- Minority Total Stock- Minority Total Stock- Minority Total holders' interest Equity holders' interest Equity holders' interest Equity Equity Equity Equity Opening balance 80,445 1,057 81,502 63,820 2,299 66,119 63,820 2,299 66,119 Adjustment for IAS 39 1,489-1, Opening balance in accordance with new accounting principle 81,934 1,057 82,991 63,820 2,299 66,119 63,820 2,299 66,119 Stock issue, net Sale of own shares Stock Purchase and Stock Option Plans Dividends paid -3, , Business combinations ,182-1, Changes in cumulative translation effects due to changes in foreign currency exchange rates 3, ,855-1, , Changes in hedge reserve -2, , Revaluation of other investments Adjustment of cost for stock issue Net income 10, ,439 17, ,836 7, ,722 Closing balance 89, ,442 80,445 1,057 81,502 71,911 1,526 73,437 Reconciliation of Equity Jun 30, from Swedish GAAP to IFRS Closing balance, Swedish GAAP 67,983 Reclassification of minority interest 1,526 Capitalization of development costs 3,701 Goodwill 227 Closing balance, IFRS 73,437 Reconciliation of Equity Dec 31, from Swedish GAAP to IFRS Closing balance, Swedish GAAP 77,299 Reclassification of minority interest 1,057 Capitalization of development costs 2,699 Goodwill 447 Closing balance, IFRS 81,502 Reconciliation of Equity Dec 31, according to IFRS and Jan 1, including IAS 39 Closing balance, IFRS 81,502 Hedge Reserve 1,155 Revaluation of other investments 334 Opening balance Jan 1, 82,991

12 ERICSSON CONSOLIDATED INCOME STATEMENT - ISOLATED QUARTERS 12 SEK million Q2 Q1 Q4 Q3 Q2 Q1 Net sales 38,444 31,467 39,430 31,836 32,595 28,111 Cost of sales -20,797-16,213-21,451-16,849-17,020-15,544 Gross margin 17,647 15,254 17,979 14,987 15,575 12,567 Gross margin % 45.9% 48.5% 45.6% 47.1% 47.8% 44.7% Research and development and other technical expenses -6,267-5,674-6,804-5,876-5,291-5,450 Selling & Administrative expenses -3,895-3,641-4,002-3,669-4,384-3,866 Operating expenses -10,162-9,315-10,806-9,545-9,675-9,316 Other operating revenues and costs , Share in earnings of JV and assoc. companies Operating income 8,303 6,602 8,933 6,590 7,250 3,933 Operating margin % 21.6% 21.0% 22.7% 20.7% 22.2% 14.0% Financial income Financial expenses , ,133 Income after financial items 8,488 6,742 8,713 6,393 7,328 3,732 Taxes -2,693-2,098-2,984-2,008-2,286-1,052 Net income 5,795 4,644 5,729 4,385 5,042 2,680 Net income attributable to stockholders of the parent company 5,843 4,617 5,618 4,349 4,969 2,603 Net income attributable to minority interest Net income 5,795 4,644 5,729 4,385 5,042 2,680 Average number of shares, basic (million) 15,835 15,756 15,832 15,830 15,829 15,749 Earnings per share, basic (SEK) 1) Earnings per share, diluted (SEK) 1) Reconciliation of net income from Swedish GAAP to IFRS Net income, Swedish GAAP 5,977 4,764 5,290 2,993 Reclassification of minority interest Reversal of amortization of goodwill Stock Option Plans Amortization of capitalization of development costs Taxes Net income, IFRS 5,729 4,385 5,042 2,680 1) Based on Net income attributable to stockholders of the parent company

13 13 Accounting policies, Ericsson adoption of IAS/IFRS in This interim report is in accordance with IAS 34. In June 2002, the EU s Council of Ministers adopted the so-called IAS regulation. From year, all exchangelisted companies within EU shall prepare and issue Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), formerly known as International Accounting Standards (IAS). The term IFRS used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by Standards Interpretation Committee (SIC) and International Financial Reporting Standards Committee (IFRIC). As from, Ericsson will issue Consolidated Financial Statements prepared in accordance with IFRS adopted by EU. The Annual Report for as well as Interim Reports will include one comparison year,, which will be restated in accordance with IFRS. As a result, January 1,, is the date of transition to IFRS for Ericsson. The two standards IAS 32 and 39 are adopted as from January 1, as allowed by IFRS 1 First-time Adoption of International Financial Reporting Standards. An opening balance per January 1,, including the effects of IAS 32 and 39 have been prepared. IAS 39 has been amended during. According to this amendment, forecasted internal transactions can be designated as cash flow hedges of foreign exchange risk. Ericsson has chosen to partly designate and report hedges of forecasted transactions in accordance with this amendment. The amendment has not yet been adopted by EU, but is expected to be adopted before end of. The information below on expected effects is preliminary and could change since the IFRS standards may be revised during. We will update the restated information for any such changes if and when they are made. Comparison and information about effects The rules for first-time adoption of IFRS are set out in IFRS 1. IFRS 1 requires one comparative year to be presented and an opening IFRS balance sheet at the date of transition to IFRS to be prepared. The transition date for Ericsson is January 1,. In general, the accounting policies applied in the opening balance shall comply with each IFRS effective at the reporting date. Some exceptions from full retrospective application are granted, however. When preparing the IFRS opening balance, the following optional exceptions from full retrospective application of IFRS accounting policies will be applied: Business combinations (IFRS 3): no restatement of business combinations prior to is made. IFRS 3 is applied prospectively from January 1,. Property, plant and equipment (IAS 16): prior revaluations are treated as deemed cost and no restatement made. Employee Benefits (IAS 19): adoption of IAS 19 is not considered a transition effect since the Swedish standard RR 29 was implemented from January 1,. RR 29 is, in almost every aspect, similar to IAS 19. Accumulated actuarial gains and losses for defined benefit plans were recognized in full in the pension liability and equity at transition date. IAS 32 and 39 are applied from January 1,, only and no restate of comparative information is necessary. Financial assets, liabilities and derivatives are accounted for in accordance with IAS 32 and 39 as from January 1,.

14 14 Ericsson has until the end of prepared its consolidated financial statements in accordance with Swedish GAAP, which in recent years have been adapted to IAS/IFRS to a high degree. This, together with the optional exceptions described above, limits the effects of the adoption of IFRS to the following most significant elements: Retrospective capitalization of development costs and amortization of such costs (IAS 38) The cessation of goodwill amortizations (IFRS 3 and IAS 38) The fair value of outstanding employee share options (IFRS 2) and recognition as expense for such share-based employee compensation in the income statement The inclusion of financial instruments at fair value on the balance sheet (IAS 39) and recycling of gains and losses on cash flow hedges through equity (from January 1, ). Employee benefits are already reported according to IAS 19 since the implementation of RR 29 as of January 1,. The forthcoming rules: IAS 38 Intangible assets When adopting the Swedish accounting standard RR 15 Intangible assets in 2002, the standard was implemented prospectively, i.e. no restatement was allowed, whereas IAS 38 Intangible assets shall be implemented retrospectively. The capitalization according to Swedish GAAP during 2002 has been the same as per IFRS. Retrospective application lead to an increase in the opening balance of intangible assets as of January 1,, due to capitalized development costs related to periods prior to 2002, and increased amortizations on such assets during and onwards. The opening balance for is equal to the closing balance according to US GAAP per December 31, 2003, since capitalization of development costs has been made for US GAAP purposes historically. Due to the restatement to IFRS, intangible assets increased by SEK 6,408 million, deferred tax assets decreased by SEK 1,794 million and equity increased by SEK 4,614 million respectively. As a result amortization for increased by SEK 2,660 million under IFRS. IFRS 3 Business combinations including goodwill Rules applying to reporting of business combinations (IFRS 3) will result in changes in reporting of acquisitions of companies. A more detailed purchase price allocation is to be made, in which fair value is also assigned to acquired intangible assets, such as customer relations, brands and patents. Goodwill arises when the purchase price exceeds the fair value of acquired net assets. Goodwill arising from acquisitions is no longer amortized but instead subject to impairment review; both annually and when there are indicators that the carrying value may not be recoverable. In Ericsson s reporting during, acquisitions carried out in are accounted for in accordance with the new rules. There will be no adjustments for acquisitions prior to the transition date, January 1,. The value of goodwill is frozen at January 1,, and amortization reported under Swedish GAAP for is reversed in the IFRS restatements for. For Ericsson, the new standard result in an increase in reported operating profit for of SEK 475 million. No difference in reported net income attributable to stockholders of the parent company arises as a result of acquisitions carried out in. IFRS 2 Share-based Payments

15 15 Ericsson has chosen not to apply IFRS 2 to equity instruments granted before November 7, For one employee option program, granted after November 7, 2002, and not yet vested by January 1,, Ericsson recognizes a charge to income representing the fair value at grant date of the outstanding employee options. The fair value of the options was calculated using an option-pricing model. The total costs are recognized during the vesting period (3 years). The impact on operating profit is a charge of SEK 45 million in and estimated to SEK 19 million in. For other programs there are no material differences. IAS 32 and 39 Financial Instruments and Hedging IAS 32 and 39 are standards that deal with disclosure, presentation, recognition and measurement of financial instruments. These standards are applied from January 1,. From 1 January, Ericsson classifies its investments in the following categories for valuation purposes: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. (a) Financial assets at fair value through profit or loss This category has two sub-categories: Financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current. Assets designated at fair value through profit or loss at inception. Ericsson has currently no investments in this category. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and with no intention of trading. Loans and receivables are accounted for at amortized cost. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. (c) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group s management has the positive intention and ability to hold to maturity. Held to maturity investments are accounted for at amortized cost. Ericsson did not hold any investments in this category during the period. (d) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available for sale financial assets are accounted for at fair value with changes in fair value recorded in equity until disposal of the investment. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

16 16 Derivatives are recognized at fair value on the balance sheet. Subsequent changes in fair value of derivatives are recognized in the income statement, unless the derivative is a hedging instrument in (i) a cash flow hedge or (ii) a hedge of a net investment in a foreign operation. In those cases, the effective portion of fair value changes of the derivative will be recognized in equity until the hedged transaction affects the income statement, at which moment the accumulated deferred amount in equity is recycled to the income statement. Fair value for derivative financial instruments are based upon externally quoted prices when available and estimated using fair value techniques using market rates for discounting of future cash flows. For derivatives assigned as (iii) fair value hedges, fair value changes on both the derivative and the hedged item, attributable to the hedged risk, will be recognized in the income statement and offset each other to the extent the hedge is effective. The opening balance January 1,, was affected by SEK 3,556 million in assets, SEK 1,952 million in liabilities and SEK 1,155 million in equity net of deferred tax as a result of accounting for derivatives at fair value. Other investments are under Swedish GAAP reported at the lower of acquisition cost or fair value. Those investments will be reported at fair value under IAS 39, and since they will be classified as Available-for-sale under IAS 39, changes in the fair value will be recognized directly in equity, unless impairment is determined. For investments in quoted companies, fair values are determined based on share prices at the balance sheet date and for non-quoted investments, fair values are estimated. The effect in the opening balance January 1,, is an increase of SEK 411 million in assets and an increase of SEK 334 million in the equity, net of deferred tax. IAS 19 Employee Benefits Ericsson reports pensions and similar benefits according to IFRS (IAS 19), which is similar to RR 29 that was implemented from January 1,. The effect of adoption of IAS 19 is therefore not considered a transition effect. The reporting of pensions for Ericsson will continue to be in accordance with URA 43 awaiting further guidance. The restatement for RR 29 resulted in an increased pension liability, reduced equity and increased deferred tax assets in the opening balance of under Swedish GAAP. The effect of implementing RR 29 was communicated in the first quarter interim report. After taking into account the tax effects, the impact on stockholders equity was a charge of SEK 1,275 million. Actuarial gains and losses were recognized in the opening balance. No other impact will occur according to IAS 19. Impact of IFRS on the Statement of Cash Flows According to IAS 7 Cash Flow, Ericsson will define cash and cash equivalents to include only short-term highly liquid investments with remaining maturity at acquisition date of three months or less. Under Swedish praxis, a broader interpretation was earlier made, where also readily marketable securities designated for liquidity management purposes only and with a low risk for value changes and with a maturity exceeding three months were included. The restated statements of cash flow for and the opening balance for the Ericsson group according to IAS 7 will therefore reflect cash and cash equivalents that are different to those previously reported under Swedish GAAP. Reclassification of provisions

17 17 In accordance with IAS 1 Presentation of Financial Statements, provisions need to be presented as both current and non-current. A liability shall be classified as current when it satisfies any of the following criteria: a) it is expected to be settled in the entity's normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within twelve months after the balance sheet date; or (d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. All other liabilities shall be classified as non-current. Accordingly, Ericsson has reclassified provisions in the balance sheet to current and non-current liabilities under IFRS. The operating cycle for Ericsson is approximately 24 months. Parent Company information The Parent Company has adopted RR 32 Reporting in separate financial statements as from January 1,. RR 32 requires the Parent Company to use similar accounting principles as for the Group, i.e. IFRS to the extent allowed by RR 32. The adoption of RR 32 has not had any effect on the reported profit or loss for or for the six month period ended June 30,. As allowed by the transition rules in RR 32, the Parent Company has decided to adopt IAS 39 Financial instruments Recognition and Measurement, to the extent allowed by the Annual Accounts Act as from January 1, The most significant impact of this is expected to be the recognition of derivatives financial instruments at fair value on the balance sheet.

18 NET SALES BY SEGMENT BY QUARTER 18 SEK million Isolated quarters Q2 Q1 Q4 Q3 Q2 Q1 Systems 36,138 29,002 36,798 29,627 30,380 26,092 - Mobile Networks 28,770 23,450 29,096 23,773 24,241 21,081 - Fixed Networks 1,130 1,048 1,519 1,027 1, Total Network Equipment 29,900 24,498 30,615 24,800 25,370 21,977 - Of which Network Rollout 3,595 2,748 3,621 2,648 2,490 2,205 Professional Services 6,238 4,504 6,183 4,827 5,010 4,115 Other Operations 2,670 2,712 3,306 2,828 2,806 2,449 Less: Intersegment Sales Total 38,444 31,467 39,430 31,836 32,595 28,111 Sequential change Q2 Q1 Q4 Q3 Q2 Q1 Systems 25% -21% 24% -2% 16% -22% - Mobile Networks 23% -19% 22% -2% 15% -18% - Fixed Networks 8% -31% 48% -9% 26% -60% Total Network Equipment 22% -20% 23% -2% 15% -21% - Of which Network Rollout 31% -24% 37% 6% 13% -31% Professional Services 38% -27% 28% -4% 22% -28% Other Operations -2% -18% 17% 1% 15% -23% Less: Intersegment Sales 47% -63% 9% 5% 37% -17% Total 22% -20% 24% -2% 16% -22% Year over year change Q2 Q1 Q4 Q3 Q2 Q1 Systems 19% 11% 10% 14% 20% 9% - Mobile Networks 19% 11% 14% 20% 28% 19% - Fixed Networks 0% 17% -32% -39% -48% -53% Total Network Equipment 18% 11% 10% 15% 20% 12% - Of which Network Rollout 44% 25% 13% -5% -2% -14% Professional Services 25% 9% 8% 9% 22% -7% Other Operations -5% 11% 4% 13% 11% 4% Less: Intersegment Sales -38% -43% 29% 65% 308% -8% Total 18% 12% 9% 14% 18% 9% Year to Date Systems 65,140 29, ,897 86,099 56,472 26,092 - Mobile Networks 52,220 23,450 98,191 69,095 45,322 21,081 - Fixed Networks 2,178 1,048 4,571 3,052 2, Total Network Equipment 54,398 24, ,762 72,147 47,347 21,977 - Of which Network Rollout 6,343 2,748 10,964 7,343 4,695 2,205 Professional Services 10,742 4,504 20,135 13,952 9,125 4,115 Other Operations 5,382 2,712 11,389 8,083 5,255 2,449 Less: Intersegment Sales ,314-1,640-1, Total 69,911 31, ,972 92,542 60,706 28,111 YTD year over year change Systems 15% 11% 13% 15% 15% 9% - Mobile Networks 15% 11% 20% 22% 24% 19% - Fixed Networks 8% 17% -43% -47% -50% -53% Total Network Equipment 15% 11% 14% 16% 16% 12% - Of which Network Rollout 35% 25% -1% -7% -8% -14% Professional Services 18% 9% 8% 8% 7% -7% Other Operations 2% 11% 8% 9% 7% 4% Less: Intersegment Sales -40% -43% 54% 66% 67% -8% Total 15% 12% 12% 14% 14% 9%

19 OPERATING INCOME, OPERATING MARGIN AND EMPLOYEES BY SEGMENT BY QUARTER 19 SEK million OPERATING INCOME AND MARGIN Isolated quarters Q2 Q1 Q4 Q3 Q2 Q1 Systems 8,155 6,217 7,897 5,858 5,940 3,492 Phones Other Operations Unallocated 1) Total 8,303 6,602 8,933 6,590 7,250 3,933 As percentage of net sales Q2 Q1 Q4 Q3 Q2 Q1 Systems 23% 21% 21% 20% 20% 13% Phones 2) Other Operations -4% 2% 14% 9% 20% 1% Total 22% 21% 23% 21% 22% 14% Year to date Systems 14,372 6,217 23,187 15,290 9,432 3,492 Phones ,143 1, Other Operations , Unallocated 1) Total 14,905 6,602 26,706 17,773 11,183 3,933 As percentage of net sales Systems 22% 21% 19% 18% 17% 13% Phones 2) Other Operations -1% 2% 11% 10% 11% 1% Total 21% 21% 20% 19% 18% 14% 1) "Unallocated" consists mainly of costs for corporate staffs and non-operational gains and losses 2) Calculation not applicable NUMBER OF EMPLOYEES Systems 47,955 46,338 45,500 44,998 45,108 45,209 Other Operations 5,683 5,587 5,034 5,260 5,568 5,440 Unallocated Total 53,638 51,925 50,534 50,258 50,676 50,649 Of which Sweden Change in percent Systems 6% 2% 1% -4% -11% -16% Other Operations 2% 3% -18% -18% -18% -23% Unallocated Total 6% 3% -2% -6% -12% -17% Of which Sweden -5% -7% -13% -13% -19% -22%

20 NET SALES BY MARKET AREA BY QUARTER 20 SEK million Isolated quarters Q2 Q1 Q4 Q3 Q2 Q1 Western Europe 1,2) 9,902 9,961 13,091 9,783 9,272 7,876 Eastern Europe, Middle East & Africa 2) 9,965 8,539 10,028 8,464 7,847 7,110 North America 6,475 3,348 2,800 3,328 4,939 4,404 Latin America 4,429 3,551 4,491 3,665 3,455 2,867 Asia Pacific 7,673 6,068 9,020 6,596 7,082 5,854 Total 38,444 31,467 39,430 31,836 32,595 28,111 1) Of which Sweden 1,571 1,494 1,839 1,457 1,543 1,341 2) Of which EU, restated due to new members since April 1, 10,528 10,607 14,002 10,053 10,144 8,167 Sequential change Q2 Q1 Q4 Q3 Q2 Q1 Western Europe 1,2) -1% -24% 34% 6% 18% -31% Eastern Europe, Middle East & Africa 2) 17% -15% 18% 8% 10% -14% North America 93% 20% -16% -33% 12% -15% Latin America 25% -21% 23% 6% 21% -13% Asia Pacific 26% -33% 37% -7% 21% -28% Total 22% -20% 24% -2% 16% -22% 1) Of which Sweden 5% -19% 26% -6% 15% -19% 2) Of which EU, restated due to new members since April 1, -1% -24% 39% -1% 24% -33% Year over year change Q2 Q1 Q4 Q3 Q2 Q1 Western Europe 1,2) 7% 26% 15% 23% 8% -4% Eastern Europe, Middle East & Africa 2) 27% 20% 22% 36% 21% 23% North America 31% -24% -46% -22% 17% 12% Latin America 28% 24% 36% 38% 57% 63% Asia Pacific 8% 4% 11% -5% 16% -5% Total 18% 12% 9% 14% 18% 9% 1) Of which Sweden 2% 11% 11% 6% 7% -4% 2) Of which EU, restated due to new members since April 1, 4% 30% 15% 18% 15% -5% Year to date Western Europe 1,2) 19,863 9,961 40,022 26,931 17,148 7,876 Eastern Europe, Middle East & Africa 2) 18,504 8,539 33,449 23,421 14,957 7,110 North America 9,823 3,348 15,471 12,671 9,343 4,404 Latin America 7,980 3,551 14,478 9,987 6,322 2,867 Asia Pacific 13,741 6,068 28,552 19,532 12,936 5,854 Total 69,911 31, ,972 92,542 60,706 28,111 1) Of which Sweden 3,065 1,494 6,180 4,341 2,884 1,341 2) Of which EU, restated due to new members since April 1, 21,135 10,607 42,366 28,364 18,311 8,167 YTD year over year change Western Europe 1,2) 16% 26% 11% 9% 2% -4% Eastern Europe, Middle East & Africa 2) 24% 20% 25% 27% 22% 23% North America 5% -24% -12% 2% 15% 12% Latin America 26% 24% 46% 51% 60% 63% Asia Pacific 6% 4% 4% 1% 5% -5% Total 15% 12% 12% 14% 14% 9% 1) Of which Sweden 6% 11% 5% 3% 2% -4% 2) Of which EU, restated due to new members since April 1, 15% 30% 11% 9% 5% -5%

21 21 EXTERNAL NET SALES BY MARKET AREA BY SEGMENT SEK million Share of Share of Share of Jan - Jun Systems Systems Other Other Total Total Western Europe 16,892 26% 2,971 61% 19,863 29% Eastern Europe, Middle East & Africa 17,856 27% % 18,504 26% North America 9,527 15% 296 6% 9,823 14% Latin America 7,884 12% 96 2% 7,980 11% Asia Pacific 12,841 20% % 13,741 20% Total 65, % 4, % 69, % Share of Total 93% 7% 100% Share of Share of Share Jan - Jun Systems Systems Other Other Total Total Western Europe 14,134 25% 3,014 63% 17,148 28% Eastern Europe, Middle East & Africa 14,477 26% % 14,957 25% North America 9,001 16% 342 7% 9,343 15% Latin America 6,105 11% 217 5% 6,322 11% Asia Pacific 12,211 22% % 12,936 21% Total 55, % 4, % 60, % Share of Total 92% 8% 100% Change Systems Other Total Western Europe 18% -3% 15% Eastern Europe, Middle East & Africa 25% 49% 25% North America 6% -13% 5% Latin America 29% -56% 26% Asia Pacific 5% 24% 6% Total 16% 3% 15%

22 TOP 10 MARKETS IN SALES 22 Jan - Jun Share of Sales total sales United States 13% China 8% Italy 7% Spain 5% Sweden 4% Brazil 4% United Kingdom 4% Mexico 3% Turkey 3% Nigeria 2% CUSTOMER FINANCING RISK EXPOSURE Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 SEK billion On-balance sheet credits Off-balance sheet credits Total credits Accrued interest Less third-party risk coverage Ericsson's risk exposure On-balance sheet credits, net value Reclassifications 1) On-balance sheet credits, net book value Credit commitments for customer financing ) Reclassification due to consolidation in accordance with URA 20 TRANSACTIONS WITH SONY ERICSSON MOBILE COMMUNICATIONS Apr - Jun Jan - Jun SEK million Sales to Sony Ericsson Royalty from Sony Ericsson Purchases from Sony Ericsson Shareholder contribution Receivables from Sony Ericsson Liabilities to Sony Ericsson